Despite Wine Glut, No "Two Buck Chuck" for Ohio
Trader Joe’s, a self-described “unique grocery store” that originated in California, has recently begun expanding into Ohio with stores in Dublin and Kettering. In addition to selling gourmet foods, Trader Joe’s is known for offering a selection of unique, reasonably priced wines, some offered exclusively at Trader Joe’s.
The most famous of the exclusive wines sold by Trader Joe’s is from the Charles Shaw Winery. Called “Two Buck Chuck” by Californians because of its $1.99 retail price, Ohioans will have to find another nickname for these inexpensive table wines. According to the Columbus Dispatch, “Two Buck Chuck” sells for $3.89 in Ohio.[1]
Does Trader Joe’s have something against Ohioans? Are they giving preferential treatment to Californians because that’s where they started? Of course not.
The high price of “Two Buck Chuck” in Ohio is attributable to Ohio’s antiquated liquor control laws. Ohio law imposes a 135 percent markup on each bottle of wine before it is sold in stores, resulting in customers paying 25 to 50 percent more for wine than customers pay in other states.
Wine sold in Ohio is significantly marked up at each level of the distribution system ¾ at the producer, the wholesaler, and the retailer. By the time it reaches the customer’s hands, a bottle of wine that cost $6 to produce will cost the consumer $14 before taxes.
To avoid some of these markups, Internet savvy Ohioans could buy their wine online if it were not illegal under state law. But those same antiquated liquor control laws forbid the interstate shipment of wine by common carrier.
A quick comparison between local “brick and mortar” sellers and online retailers illustrates how much the ban on interstate shipment, let alone the mandatory markup, is costing Ohioans. For the purpose of comparison, three random wines were chosen from a local grocer on High Street in Columbus and compared with the lowest priced wine available through the website winesearcher.com.
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1999 Kenwood Jack London Cabernet Sauvignon Sonoma Valley
Local grocer: $36.19 http://www.winesearcher.com/: $24.99
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1999 De Loach Chardonnay
Local grocer: $19.99 http://www.winesearcher.com/: $11.47
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2000 Fetzer Barrel Selection Chardonnay
Local grocer: $14.19 http://www.winesearcher.com/ $10.99
In each case, the wine is significantly cheaper from the online retailer. The mandatory markup in Ohio is so large that Ohioans would only need to buy a couple of bottles each time to justify the shipping expense.[2] While customers will never abandon their local store due to the convenience of location and immediacy, legalizing the purchasing of wine through the Internet would allow Ohioans to have a larger selection of wines available to them at a lower cost. Right now Ohio’s ban on the direct shipment of wine from the producer to the consumer denies citizens the right to purchase wine in a nationally competitive market.
Ostensibly, these restrictions are in place to protect minors and ensure state taxes are collected. The reality is that these restrictions exist only to serve the interests of those who benefit from the mandatory markups. As Nobel Prize winning economist Daniel McFadden explains, “The [state] restrictions on direct purchase of premium wines and their interstate shipment …[are] another example of abuse of the regulatory process to protect concentrated economic interests, going far beyond the minimum regulations needed to maintain the integrity of State taxation and to protect minor consumers."[3]
Consumers and wineries are taking steps to free customers from the binding laws in the wine market. One California winery, Ravenswood, states on their website that the trade barriers, “represent a serious infringement of free trade as well as individual rights,” and have provided a sample letter to write to state representatives in opposition to the barriers. Free the Grapes! is a national grassroots coalition of consumers and wineries that is working to legalize direct to consumer shipments.[4]
Hopefully their efforts will come to fruition. Until then, if you go to Trader Joe’s you’d better ask for “Four Buck Chuck.”
Notes
[1] Jim Weiker, “Cheers for Wine Glut, Lower Prices,” Columbus Dispatch, 15 May 2002.
[2] For example, the savings on the 1999 Kenwood Jack London Cabernet Sauvignon are so large, that even at a cost of $17.50 to ship two bottles by 2-Day Air Service, Ohioans would still save $4.90 over their local grocer. If six bottles were purchased, the savings increase to $36.25.
[3] Daniel L. McFadden, “Interstate Wine Shipments and E-Commerce,” www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf
[4] For more information on Ravenswood’s efforts, see www.ravenswood-wine.com. More information on Free the Grapes! is at www.freethegrapes.org/
Jen Melby is a former research intern with The Buckeye Institute. Joshua C. Hall is a senior fellow with The Buckeye Institute.
